Anya Kamenetz

Retirement. Young workers, does the word make you nervous? Make your eyes glaze over? Or both? Never fear, by the end of this column you will have a plan in place.

Surveys show that workers under 35 understand the reality that they'll be responsible for the majority of their own retirement income through savings and investments. Unfortunately, they're not putting their money where their mouths are. Only 28 percent of young workers participate in employer-sponsored retirement plans when offered -- the lowest participation rates of any age group.

According to the Employee Benefit Research Institute (EBRI), 56 percent of 25 to 34-year-olds have less than $10,000 in assets (not counting real estate) and 71 percent have less than $25,000. As a rule of thumb, you should have well over six figures in savings by the time you finish your first decade in the workforce if you expect to retire. Most worrying of all, according to EBRI, fewer and fewer young workers are even bothering to do the math to estimate how much they need to retire.

Young people tend to give four reasons for putting off retirement planning: It seems too far away. They have other financial obligations, like debt. Their earnings are too low to save "enough," so why bother? And, finally, it's too complicated. Here's how to banish all four objections.

1) It's too far away.

Money that you put away in your 20s has 10 more years to grow through compound interest. The difference is dramatic. Compounding means a single $100 bill you invest in the stock market when you're 25 can be worth $2,172 at retirement, but that same $100 invested at 35 would be worth only $1,000. There's no time to lose.

2) I'm paying off student loans.

It's true that if you have student loan debt, you should continue to pay it down on time. But that obligation must be balanced with the obligation to start saving for retirement as soon as you start working (see No. 1).

3) I can't save "enough."

Maybe you can't spare the maximum annual 401(k) contribution of $16,500, or the maximum annual IRA limit of $5,000, or the recommended 10 percent of your salary. Ideally, you'd contribute enough from your paycheck to pick up an employer's 401(k) match, which may be 1 to 3 percent of salary. But even if you can only spare $1,000 a year, it's still worth it to save for retirement. See No. 1 -- math is on your side -- and also know that getting into the saving habit itself is a valuable behavior to practice for a lifetime.

4) It's too complicated.

It's actually quite simple. Email your company's HR director and tell him or her you want to open a 401(k). If you don't have a 401(k), or a job, pick a brokerage such as Vanguard or Fidelity and tell them you want to open a Roth IRA (best for people in their 20s). You can do this online or over the phone. You can set up automatic monthly contributions of as little as $100 through your paycheck or through your bank. Once you've set up your account, look for either low-cost index funds or exchange-traded funds, such as the Fidelity Spartan 500 Index Fund, the Vanguard Total Stock Market Fund, or Vanguard's Total Stock Market ETF (VTI).

An index fund gives you broader exposure to the entire stock market, unlike traditional mutual funds. And fees for these funds are less than 1 percent, which should be your target, because fees make a huge dent in your returns over time.

Worry about diversification later -- today, the goal is to get started, and $1,000 in an index fund will have you on your way.

Anya Kamenetz' latest book is "DIY U: Edupunks, Edupreneurs, and the Coming Transformation of Higher Education "

Available at Amazon.com:

Lifecycle Investing: A New, Safe, and Audacious Way to Improve the Performance of Your Retirement Portfolio

Worry-Free Investing: A Safe Approach to Achieving Your Lifetime Financial Goals

Spend 'Til the End: The Revolutionary Guide to Raising Your Living Standard--Today and When You Retire

The Hard Times Guide to Retirement Security: Practical Strategies for Money, Work, and Living

Generation Earn: The Young Professional's Guide to Spending, Investing, and Giving Back

Happy at Work, Happy at Home: The Girl's Guide to Being a Working Mom

 

Personal Finance - The Least You Need to Know About Retirement

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